Notional Interest Deduction rates for 2021

On 12 February 2021, the Tax Department issued an announcement listing the 10-year government bond yield rates as of 31 December 2020 for various countries with respect to the Notional Interest Deduction (NID) on equity. These yield rates are to be used to determine the reference interest rate for claiming NID for the 2021 tax year. The rates can be found here. The key NID provisions are summarized here.

How Notional Interest Deduction is calculated

NID is calculated by multiplying the New Capital introduced in the company with a Reference Rate. By way of a restriction, the NID deduction cannot exceed 80% of the taxable income generated via the application of the new capital funds and the total income generated by all the assets and activities resulting from New Capital funds.

To whom NID applies

NID can be claimed by all Cyprus tax resident companies and Permanent Establishments of non-resident companies. NID can also be applied to companies redomiciling to Cyprus on or after January 2015 as well as companies shifting their management and control (i.e. tax residence) to Cyprus.

Anti-avoidance provisions

Certain anti-avoidance and limitation provisions exist, including a general anti-avoidance rule whereby the Tax Commissioner may disallow the deduction of NID in case that actions or transactions took place without any commercial reasoning other than the intention to erode the tax base.

How can we help?

We are at your disposal to discuss the effect of the above provisions to your corporate structure and arragements.

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